Shares of GameStop (GME) are under pressure in after-hours trading as the company reported a larger-than-expected decline in third quarter revenue. Although the company swung to an operating income profit and realized a substantial improvement in profitability, shares are down by more than 5%.
The video game and collectibles retailer earned an adjusted profit of $0.24, up from $0.06 a year earlier and 4 cents better than expected. Operating income increased to $41.2M versus a loss of $33.4M in the same quarter last year, and, excluding impairment and other items, reported adjusted operating income of $52.1M, and improvement from a loss of $24.6M a year ago.
By segment, sales of hardware and accessories were down 12% to $367.4M, or 44.7% of total sales, software sales were down 27% to $197.5M, or 24.1% of total sales, while collectibles realized a 50% gain to $256.1M, rising to 31.2% of total sales from 19.9% of total sales last year. As a result, combined sales were down 4.5% to $821M, $166.3M less than expected.
As of the end of the third quarter, the company’s Bitcoin holdings were valued at $519.4M compared to $528.6M at the end of the second quarter.
“GameStop’s exit from Canada is proving to be a wise move, and though the company is facing tough prior-year comps from losing a ~5% chunk of its global sales base, the elimination of a lossmaking division has helped GameStop boost operating margins to 5.0%, from -3.9% in the year-ago Q3,” said Seeking Alpha analyst Gary Alexander, noting that despite the company’s Bitcoin losses, GameStop’s ongoing cash flow “helps dispel the risk of [Bitcoin] losses.”